Planning Opportunities for Owners of Passive Foreign Investment Companies

What is a passive foreign investment company (PFIC) and why is it important?

To stem a perceived abuse, Internal Revenue Code §§ 1291 to 1298 were enacted in 1986. Without them, a U.S. shareholder of a foreign corporation holding investment-type assets generating current ordinary income such as interest, dividends, royalties or rent could potentially convert these increases to a capital gain, defer paying tax on that gain for years if no distributions/sales of stock occurred and then pay tax on those deferred gains when ultimately realized at lower long-term capital gains rates.

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